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Revenues of NPOs SOARING

November 1, 2006 Mark Hrywna

It could be said that fundraising and spending in the nonprofit sector during 2005 was a disaster – as in hurricanes Katrina and Rita and the tsunami in Asia.

But, that wouldn’t be completely accurate. A stock market that has steadily grown during the past few years to its recent record highs helped to fill the coffers at charities with the largest endowments and tightest checking accounts – even if it’s only a sweep money market account.

The NPT 100 organizations involved in relief efforts grew exponentially. Organizations not involved also experienced growth, unless they were coming off a capital campaign in fiscal 2004 or there was some other one-time occurrence during the period.

In this 18th annual NPT 100, the buy-in to this project was $130.77 million, up from the $115.27 million it took to make it onto last year’s list. Overall, total revenue for the 100 organizations was $58.99 billion, compared to $49.7 billion last year, a difference of almost 18 percent, and nearly double last year’s 9.8 percent increase. Public support also was up nearly one-third among the 100 nonprofits, up from $23.1 billion to $29.4 billion.

The compilation of numbers for this edition of the NPT 100 is from fiscal year 2005. To make it into the ranking, an organization must have acquired at least 10 percent of income from public support. Also ineligible for the ranking are pass-through entities, such as the United Way of American and the investment funds such as Fidelity. The thinking on the pass-through entities is that the money would be double counted, by the pass-through entity and by the organization that received the money.

The Form 990 for several hundred organizations was obtained and many groups were asked for additional information, including consolidated financial statements. The data spreadsheet was more than 1,700 pages.

The data was crunched by Grant Thornton LLP, a consultant to The NonProfit Times for the NPT 100 for the past several years.

Former NPT 100 organizations that just missed out on the list this year were Jewish Board of Family and Children’s Services ($130.76 million), U.S. Golf Association Foundation ($126.6 million) and Billy Graham Evangelistic Association ($125.7 million).

The Legal Aid Society also didn’t make the list, but not because of its income ($158.1 million) but because public support fell just short of 10 percent ($15.3 million). Similarly, Pew Charitable Trusts had income of $232 million, up from $108 million, and while it was technically public support on its Form 990, only $14 million came from outside sources, with the remainder from the seven family trusts, according to a spokeswoman.

And where’s Lutheran Services in America (LSA), despite its nearly $9.5 billion in total income? While many of LSA’s almost 300 independent health and human service organizations would meet the 10-percent threshold, collectively LSA would not, according to President and CEO Jill Schumann.

New to the list this year is the United Cerebral Palsy Associations, which checks in at No. 36 with $437 million. Last year, despite total income of $459 million, the nonprofit didn’t make the list because it failed to have 10 percent in public support ($36 million). A returnee to the list is CRISTA Ministries, which was not ranked last year but jumped to No. 84 this year with $170 million thanks to in-kind and other contributions for its disaster relief efforts. A

fter an extraordinary fundraising year helped the Museum of Fine Arts, Boston, reach No. 64 on last year’s list, the museum dropped to No. 90 this year. Despite just a $3 million decline in total income ($158 million to $155 million), the JFK Center for the Arts saw its ranking go from No. 74 to No. 93.

While times were good for many organizations, they were also met with experiences that burdened their efforts. For example, food programs that rely on transportation saw administrative expenses skyrocket because of fuel prices.

The fact that revenue is up can be misleading, according to Frank Kurre, managing partner of Grant Thornton’s national nonprofit practice. “Unfortunately, the way the 990s are structured you can’t pull it (disaster revenue) out readily…. It’s hard to judge whether or not there’s really an overall increase in support or not.”

Kurre explained that there is also increased revenue in education groups, not related to disasters: “We are seeing sizable increases for example in higher education and also in the museum space. I think many of the museums are really focused on the educational component of what they’ve done,” he said.

“If you look at the strategic plans on a lot of the largest of museums, it’s not so much on the exhibits, it’s really on the education, the distance learning, the partnering up with other institutions. You’re seeing museums partnering up with higher education institutions, with secondary schools, elementary schools, and that’s generating a decent amount of revenue.”

There is more in-depth discussion on revenue in the public support story on the following pages.

The stock market has been good to charities, but many are treading dangerously with hedge funds. There is a story regarding investment income in this special section.

Federal, state and local governments are spending on services that charities handle, but the competition for the funds is stiff. “We’re seeing a situation where certain state and local governments have cut back but I think the federal government on an overall basis is continuing to spend the money,” said Kurre. “I don’t really see any federal grants declining across the country, I think that in some sectors there’s just more competition. Government is introducing competition into the grant approval process for the first time and we didn’t see that three years ago or five years ago.”

As quickly as the money gets in the front door it goes back out. Said Daniel Romano, executive director, tax, for GT’s northeast higher education and nonprofit practice: “Fundraising expenses increased slightly but not nearly as much as the public support increased. One thing that I would look for going forward is more expenses for management in general, and the reason being is government is pushing for better management of charities, across the board. They want board involvement, more grants given out, more program operations, and it ends up resulting in organizations have to spend more on their management in general.”

Donors are keeping an eye on administrative expenses, said Kurre. “What we are seeing more pressure on is the issue of administrative expenses, particularly as a percentage of total expenses. The Better Business Bureau has always been out there, but now we’ve got GuideStar, Moody’s and a bunch of others. Almost every meeting I go to with an audit committee is very focused on, ‘Are our admin costs too high, in relation to our overall expenses. What’s the ratio to program costs to admin cost?’”

Kurre said to expect to see some tightening up there. “There’s also a sense, ‘Can we reclassify expenses that are classified as admin to program.’ We monitor that very carefully because we don’t want to see anybody try to move things that shouldn’t be moved. If legitimately it is something that can be moved, we’re fine but we’re not gonna play games with the numbers.

“One of the things that organizations are definitely looking at, and boards looking at too, as far allocating those expenses properly,” Kurre said. NPT